Could credit union provide the solution to your financial needs?
May 31, 2008
Many consumers these days have found that as a result of the tight credit conditions in operation getting any sort of finance from mainstream lenders has become increasingly difficult, and in some cases impossible. However, just because availability to finance has been reduced it does not mean that consumers’ need for finance has been reduced, and this is why many people have found themselves looking for an alternative method of borrowing when the going gets tough.
Many people decide to turn to payday loans and lenders, or money shops as they are sometimes known, where they can borrow relatively modest amounts for a short period of time, and usually for a hefty fee. However, even with these lenders certain eligibility conditions need to be met in terms of income, employment, etc. Some people, particularly those on very low incomes and the unemployed, go one step further and turn to doorstep lenders, who often charge incredibly high rates of interest.
Industry officials – and even the Archbishop of Canterbury – have expressed great concern over the reliance of vulnerable consumers on these doorstep lenders, as many are putting themselves on a slippery slope by using this method of borrowing – and are being charged ridiculous amounts of interest. Rowan Williams, the Archbishop, recently said: “One of the things I would really want to see as a matter of urgency reviewed here is the interest rates charged by some doorstep lending companies.”
He added: “There is the need for the teaching of financial literacy. People often don’t understand what the rates of interest might be. They can find themselves being charged over 1,000 percent in a couple of years’ time with rollover debts.”
The Association of British Credit Unions has put forward a solution that could really help some consumers that need finance, cannot get finance from mainstream lenders, and do not want to turn to doorstep lenders or high interest payday loans. Officials have suggested that credit unions can provide an invaluable financial service to many, and borrowers can avoid high interest charges.
One official from the group said: “Credit unions offer a great alternative to money shops and payday loans for people needing small loans over relatively short periods. Credit unions charge no more than two per cent on the reducing balance of a loan and many charge just one per cent, which would mean that £1,000 taken out for a month and paid back weekly would accrue just £5.76 in interest at one per cent.”
She went on to state: “I would recommend that anyone needing a small loan first looks to their own bank or building society or credit union for a loan, rather than using doorstep lenders or money shops, if they want a good deal. Credit unions are not as well known in Great Britain as they should be but they are basically financial co-operatives which aim to get the best deal for their members. In the US and Ireland, for example, credit unions are very much mainstream financial institutions with millions of members.”
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